DTN Oil Update
Oil Extends Decline as New US Sanctions Spare Oil Supply
VIENNA (DTN) -- Oil prices fell for a third day Wednesday morning on reports that Iran and Oman made significant progress in negotiations to establish a jointly controlled shipping corridor in the Strait of Hormuz.
By 8:10 a.m. EDT, ICE Brent for October delivery was down $2.19 to trade near $86.39 bbl, touching a 16-day low $85.41 bbl. NYMEX WTI for October delivery fell $1.83 to $80.53 bbl, after briefly slipping below the $80 bbl mark in early morning trade for the first time since Aug. 10.
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Downstream, NYMEX ULSD for September delivery slumped $0.1150 to $4.1288 gallon, and front-month RBOB futures retreated by $0.0092 to $3.2437 gallon.
The U.S. Dollar Index strengthened by 0.082 points to 98.92 against a basket of foreign currencies.
Ship tracking data showed that traffic through the chokepoint has slowed since Iran stepped up attacks on tankers, although some oil continued flowing through a U.S.-protected corridor along the Omani coast.
Tehran had previously announced intentions to levy a transit fee and share control over the vital waterway with Muscat. On Tuesday, officials from both governments announced a breakthrough after weeks of negotiations. State-affiliated media in Iran reported plans to establish a joint shipping corridor within 60 days, and claimed that the countries had agreed on a model to share revenues. Oman's foreign minister did not comment on potential transit fees, but said he was optimistic a temporary shipping corridor could soon be established.
Washington has during the six-month long war rejected Iranian territorial claims over the strait, and said that plans to impose a shipping fee were a non-starter. Tehran has with the U.S. naval embargo lost an important state revenue stream from energy exports which it seeks to replace.
A New York Times report that the U.S. was preparing to return evacuated embassy personnel to the region also weighed on the risk premium, as did comments from Pakistani mediators touting "significant progress" following a visit to Tehran.
Total oil inventories in the U.S., meanwhile, continued to shrink. While commercial crude oil stocks have recently expanded, in no small part due to vast emergency stockpile releases, refined product inventories stayed near seasonal decade-lows. The American Petroleum Institute (API) on Tuesday reported that commercial crude stocks rose by 4.2 million bbl last week, compared to a 3.7 million bbl drawdown from the Strategic Petroleum Reserve reported by the Department of Energy on Monday. According to the API, nationwide gasoline inventories receded by 3.2 million bbl following a modest rise in the week prior, while distillate fuel oil inventories extended their decline by 500,000 bbl last week. Official inventory data from the U.S. Energy Information Administration is scheduled for release at 10:30 a.m. EDT Wednesday.